Top 5 Tax Reduction Strategies for Millennial Entrepreneurs
In order to save taxes through legitimate and easy ways as a small business owner or an entrepreneur, it’s important to ask yourself certain critical questions as to how you can also discover the strategies employed by other experienced entrepreneurs to save taxes. These are a few ways you too can follow up until the next tax-filing date to help you save money.
1. Invest In Tax-Free Investment Opportunities
There are some investments that give tax-free gains, even if you don’t buy them in a tax-advantaged account. An example is a municipal bond. This type of bond allows you to lend money to a state or local governmental entity for a set number of interest payments over a predetermined period. Once the bond reaches its maturity date, the full amount of the original investment is repaid to you. The interest on your investments will be tax free and may be tax-exempt at the state and local level as well, depending on where you live. Tax-free interest payments make municipal bonds attractive to investors.
2. Hold Investments for Long Term
Keep note of when you initially buy an investment if you’re investing in taxable accounts. Any earnings you generate are regarded as short-term capital gains when you swiftly buy and sell investments, such as stocks, mutual funds, exchange-traded funds (ETFs), and cryptocurrencies. They have the same taxable rate as your ordinary income,
Also if you hold a capital asset for longer than one year you enjoy a preferential tax rate of 0%, 15%, or 20% on the capital gain, depending on your level of income. Knowing the difference between long-term and short-term capital gains rates is important for growing wealth.
3. Claim Tax Credits
Tax credits easily cut your taxable income dollar for dollar, so they are sometimes more beneficial than tax deductions. There are many IRS tax credits that reduce taxes, such as the Earned Income Tax Credit or the EITC, which is a work credit that may give you money back at tax time or lower the federal taxes you owe. The main requirement is that you must earn money from a job. The credit can eliminate any federal tax you owe at tax time.
4. Increase Retirement Account Contributions
All 401(k) or 403(b) contributions taken from your paycheck on a pre-tax basis reduce your taxable income, which is the amount of your income the government can tax as already stated. Your contributions to a traditional IRA may also be on a pre-tax basis (for those eligible to deduct their contribution) and therefore lower your annual gross income (AGI), too. Whether you can take a tax deduction depends on how much you make and if you have access to a retirement plan through your employer. In 2022, the maximum IRA contribution is $6,000 and the max 401(k) contribution is $20,500
5. Use a Health Savings Account (HSA)
This could be connected to the employee benefits you receive at work. If you wish to save money for emergency medical expenses and have a high deductible health plan (HDHP) through your employer, you may be able to contribute to your health savings accounts (HSAs)
The maximum deductible contribution level is $3,600 for an individual and $7,200 for a family in 2021. For 2022, those maximums rise to $3,650 for individuals and $7,300 for families. These funds can then grow without the requirement to pay tax on the earnings.
In Conclusion
The journey towards a healthy financial future is not unattainable, and with taxes playing a very critical role thereof, maximizing the opportunities that can contribute to your financial health is an ideal solution. Work on the strategies you think will work best for you consistently, you’ll be amazed by the results you will be seeing in the end.